Blogging Employee Benefits

August 19, 2006

State’s Healthcare Assignment Law Not Preempted

Filed under: ERISA Preemption, Healthcare, Litigation — Fuguerre @ 10:07 am

As is often the case, congressional silence whispers sweet nothings in the ears of both parties.

Unconvinced by the whispers of health insurers, the 5th Circuit has affirmed a district ruling that Louisiana law relating to assignment of healthcare benefits is not preempted by ERISA. [Louisiana Health Service & Indemnity Co. v. Rapides Healthcare System, 04-31114]

Louisiana state law requires an insurance company to honor assignments of healthcare benefit claims made by patients to hospitals. A provision under the insurer’s agreement with “participating providers” allowed direct payment to a healthcare provider; but payments for services from a “nonparticipating provider” were made solely to the patient, regardless of any assignment to the healthcare provider. When hospitals took noncompliance with the state’s assignment statute up with the Louisiana Department of Insurance, the insurers went to court seeking a declaration that the state law was preempted to the extent applicable to ERISA employee welfare benefit plans.

The appellate court first disagreed with the district court on weight given to language in the healthcare plans stating that assignments were not to be honored “except as required by law.” The insurers contested the district court conclusion that that plan provision required compliance with the state assignment law, arguing that plan provision to be trumped by another stating “except when preempted by federal law.” The appellate court disagreed with both sides, instructing —

Neither policy provision displaces the preemption analysis in this case. ERISA plans must always conform to state law, but only state law that is valid and not preempted by ERISA. The presence of the phrase “except as [sic] preempted by [federal] law” serves no additional purpose, as all state laws are potentially subject to ERISA’s preemptive force. The two provisions do not forestall determination of the preemption question.

Turning to the central issue of ERISA preemption, the court rejected the insurer’s contention that the state’s assignment statute conflicts with ERISA’s exclusive enforcement scheme, pointing out —

ERISA is silent on the assignability of employee welfare benefits; it neither prohibits nor mandates recognition of assignments.

Moreover, the state’s assignment statute does not create additional enforcement mechanisms that duplicate otherwise applicable ERISA duties. To insurer concerns that compliance with the assignment statute poses risks of double recovery through liability to a hospital after a patient had already been paid, the court responded that assignments simply ought not be ignored, observing —

Failure to follow the law cannot create preemption concerns.

As to the issue of whether the state assignment law is preempted because it “relate[s] to” employee benefit plans, the court heard from the opposing parties two contrasting interpretations of the whisperings gleaned from congressional silence regarding assignment of employee welfare benefits: from the insurers, that the issue is to be left to free negotiations of the contracting parties; from the hospitals, that ERISA is not to preclude state law on the issue. On this debate the 5th Circuit parted company with the 8th and 10th Circuits to side with the hospitals, rejecting insurer arguments that the assignment law imposes a set of rules requiring benefit payments in contravention of plan documents and impermissibly interferes with nationally uniform plan administrator. Viewing contrary precedent as uninformed by the “starting assumption that Congress did not intended [sic] to preempt state law in an area of traditional state regulation,” the court stood convinced that Louisiana’s assignment statute has no impermissible connection with ERISA plans.

Congressional silence cannot dictate our conclusion in this case, but we consider what Congress did in order to determine what Congress intended to preclude the states from doing.

August 15, 2006

Tax Implications of HRA Reimbursement to Designated Beneficiary

Filed under: Healthcare — Fuguerre @ 12:24 am

Amounts paid to an employee under a [health] reimbursement plan are not excludable from gross income under §105(b) if the plan permits amounts to be paid as §213(d) medical benefits to a designated beneficiary (other than the employee’s spouse or dependents of the employee). None of the payments made from the reimbursement plan during the plan year to any person, including amounts paid to reimburse the medical expenses of an employee or the employee’s spouse or dependents, is excludable from the gross income [of the employee].

Rev. Rul. 2006-36

An IRS holding that frankly I didn’t find all that unexpected, given the setting of the law and regs and Notice 2002-45, which are analyzed and discussed in this latest ruling.

What surprised me was the leniency of the effective date. Sure, any new provision on or after August 15, 2006, is immediately exposed. But for a health reimbursement arrangement with a non-complying provision in place on or before August 14, 2006, the adverse tax implications won’t apply until plan years beginning on or after January 1, 2009.

August 7, 2006

OPM Proposed Rules on Waiver of Requirements for Health Care Continuation during Retirement

Filed under: Federal employees, Healthcare — Fuguerre @ 6:24 am

The Office of Personnel Management has proposed a revision to regulations under which it will waive the eligibility requirements for a federal employee to continue coverage under the Federal Employees Health Benefits Program as a retired annuitant. [Proposed Reg. 890.108]  Current regulations list specific situations where OPM will not waive FEHB eligibiity requirements, such as when the individual’s retirement is based on disability or an involuntary separation, or when the individual had been incorrectly advised by the employing office. The proposed regulations would eliminate those specific situations, providing OPM with greater flexibility in the waiver process.  Comments on the proposed regulation should be made by 10/6/2006.

July 20, 2006

ERISA Exempts Maryland Wal-Mart Law

Filed under: Healthcare, Litigation — Fuguerre @ 6:47 am

If employers are faced with the choice of paying a sum of money to the State or offering an equal sum of money to their employees in the form of health care, no rational employer would choose to pay the State.

Arguing that Maryland’s Fair Share Health Care Fund Act presents an employer with a Hobson’s choice aimed directly at imposing a substantive mandate of health care, the Maryland district court has ruled that law exempted by ERISA. [Retail Industry Leaders Association v. Fielder, JFM-06-316; Order] Effectively aimed exclusively at Wal-Mart, the law would by 1/1/2007 have required non-governmental non-profit employers of 10,000 or more employees within the state to spend at least 8% of wages toward health insurance costs, else pay into a general state fund for low-income residents’ health care.

But expect this decision to be appealed, watch for decisions in similar cases to the north, and keep tabs on many other states with comparable legislation under consideration.  This is but an early battle in a very very long war ahead.

March 7, 2006

Emergency Continuation Coverage for Federal Employees

Filed under: Federal employees, Healthcare — Fuguerre @ 8:31 am

If a FEHB health plan temporarily or permanently becomes incapable of providing services because of a Katrina-like disaster, federal employees will be granted the right to change health plan enrollment within 60 days of an emergency announcement by the Office of Personnel Management, under regulatory amendments proposed by OPM. [5 CFR 890, 71 FR 11287] Designation of a disaster that would trigger the special open period will be at OPM’s discretion.

If an enrollee does not change enrollment within the 60-day period, possibly due to disaster-related communications failures, then the enrollee will be considered automatically enrolled under the standard option of the Blue Cross and Blue Shield Service Benefit Plan. The proposed rule does not provide a follow-up special open period for election out of that standard plan after communications have been re-established.

Comments are sought on the proposed changes by May 8, 2006.

February 24, 2006

Benefits Growth Outpaces Comp Growth … Maybe

Filed under: Healthcare, Pensions — Fuguerre @ 8:26 pm

The title to a fresh GAO report carries its key message, Employer Spending on Benefits Has Grown Faster Than Wages, Due Largely to Rising Costs for Health Insurance and Retirement Benefits. [GAO-06-285]

The GAO found that from 1991-2005, inflation-adjusted employer costs of benefits rose about 18 percent, while real wages rose only 10 percent. However, virtually the entire differential emerged during the most recent 3-year period, when wage growth only matched inflation while employers’ costs for benefits continued to rise more; in contrast, from 1991 through 2002, the increase in the costs of benefits and wages were virtually identical.

The GAO attributes most of the increase in benefits costs to health insurance and retirement income, the cost of which comprise almost 60 percent of benefit packages. Paid leave, traditionally the most expensive benefit, yielded first place to health insurance during the study period. Escalation in health care costs was attributed to advances in medical technology, increased utilization of expensive procedures and services, and population aging.

But the element seemingly on steroids – pensions, for which the GAO estimated inflation-adjusted growth at 47 percent during the period – may instead have been viewed somewhat through an amusement park’s funhouse mirror. The GAO acknowledges that most of pensions’ growth in the study came through via defined benefit plans since 2002, which during the preceding several years had suffered devastating returns in the stock market (although the GAO report incorrectly lumps “bonds” into the appraisal of that explanation, and fails to fully recognize that concurrent and lingering declines in interest rates had an even more devastating distortion on the DB side of the picture).

Experts consulted for GAO’s report interpreted the trends as “forcing private employers and their employees to make trade-offs between wages and benefits,” that “workers are foregoing wage increases in order to maintain benefits.” The experts noted the established trend of “shifting toward increasing responsibility and risk to the employee” without explaining how employer costs for benefits had still managed to diverge so much from wages in the face of that cost-shifting. The GAO itself points to another major trend pushing against total compensation growth: “offshoring and using contingent workers (many of whom are not offered benefits).” Absent cuts in retiree health plans, absent major sea changes in health benefits for active workers, absent the global pension ice age forcing employees to lean on defined contribution accounts for retirement dreams, and absent outsourcing, presumably the divergence witnessed by the GAO during the past 3 years would have been far more severe. Even so, the experts warned that productivity growth could not be expected to support continuation of the recent trends in benefit costs, “challenging employers’ ability to offer health insurance and retirement income,” suggesting even further cost-shifting ahead.

Well, maybe. Although tag me unconvinced that these numbers connect very well with those messages. Certainly there is no denying the momentum of globalization, demographics, technology, and sweeping social and financial change, each and altogether leaving permanent marks on compensation and benefits, although the experts’ interpretation of exactly how that all shows itself in the data seems to this observer rather apocryphal on the retrospective side of the picture and somewhat self-serving to the prospective.

For my future fugues file the health care piece of this. Guerre du jour, that bulge that did most to give the GAO report its title: pension “costs” for the past 3 years. So tell me, did that recent huge jump mix cost with contribution? Say, in particular, are we including GM’s $19 billion cash contribution to its pension plans in 2003? and IBM’s $4 billion in 2002? and similar spikes in contributions by most other defined benefit plan sponsors? Because if that’s what we’re looking at, then keep most of the dots on the page, but they don’t connect quite the way the GAO report’s title suggests. Or are we looking at costs as reported on employers’ financial statements, which although not as jagged a trend as contributions, have still risen sharply the past 3 years for related but differently responsive reasons? Even then, the data still does not connect with the title or the message quite the way it is being posed here. Or are we looking at charges for benefits accruing in the current year, as measured by service costs together with some net financing charge for carrying the risk forward toward retirement? I strongly doubt that it, but if we were, then the fingers pointed toward the stock market would be quite badly misdirected.

Am I being unfair if I suspect that the report authors would not be able to settle that starting point out for me? that I need to research it myself by probing back into the BLS data that the report was built on? And shouldn’t I know that fundamental before I doubt the message? Except that under any of the three main lines I’ve postulated here, the report’s title message has to be very heavily qualified, almost to the point of characterizing it as not actually so. And let me get more blunt: pull data that follows something other than contributions, reported costs, or service costs, something that purports to represent the real underlying compensation cost for retirement benefits, and when balanced by the long-term move that has been taking place toward defined contribution plans, then I would not be seeing the graphs that the GAO is drawing.

Then again, I am not one of the GAO’s experts.

Interim Regs on Medicare Secondary Payer Amendments

Filed under: CMS, Healthcare, Medicare, Regulations — Fuguerre @ 7:22 am

Medicare may also seek reimbursement from any entity that has received payment from a primary payer. Entities that receive payment include, but are not limited to beneficiaries, attorneys, and providers or suppliers (including physicians).

Interim regulations implementing Medicare Secondary Payer (MSP) amendments made by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) have been published by Centers for Medicare & Medicaid Services (CMS). [42 CFR 411 and 489, 71 FR 9466] The new rules clarify various MSP definitions and rules, including the legal basis for collection of amounts from employers and other entities payments made by Medicare to providers when Medicare coverage should have been secondary.

A primary payer and any entity that receives payment from a primary payer is obligated to reimburse CMS once primary payment responsibility has been demonstrated. That obligation is not eliminated if the primary payer has paid the wrong party, such as by paying the Medicare beneficiary or the provider when it ought instead to have reimbursed the Medicare program.

Where a group health plan or large group health plan is the primary payer, all employers that sponsor or contribute to the group health plan have a reimbursement obligation to Medicare, regardless of whether the plan is insured or self-insured. Self-insured status may be demonstrated by the failure to obtain insurance, among other ways.

Reimbursement is not required if Medicare has already recovered payment. However, Medicare is not required to pursue the entity that received payment before it pursues the primary payer for reimbursement.

Although technically the MMA amendments clarify MSP provisions effective as if enacted in 1980 with the original legislation, the interim regulations are effective 4/25/06. Comments on the interim regulations should be submitted to CMS by 4/25/06.

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